Insurance Australia Group Ltd (ASX: IAG) shares rose after it released its half-year results for the first half of FY19 showing net profit after tax down 9% to $500 million, compared to $551 million in the corresponding period.
IAG reported its underwriting insurance profit being down 33% to $496 million, compared to $745 million previously. IAG attributed most of the decline in its reported insurance profit due to the impact of the December 2018 hailstorm in Sydney.
IAG also reported its return on shareholder funds invested being a loss of $7 million compared to a profit of $129 million previously. It attributed the loss to negative returns in the equity market, citing the broader Australian market, or S&P/ASX 200 Accumulation index, delivering a negative return of 6.8%.
Recognised in the net profit of $551 million for the period was also $208 million from the sale of its business in Thailand.
IAG’s cash earnings basically halved to $319 million, down 49%. A reduction in the dividend also followed, down 14% to 12cps, representing a cash payout ratio of almost 87%.
However, it was not all bad news as gross written premiums (GWP) were up 4%, largely driven by premium increases opposed to new customers. 78% of premiums were from Australia, with 22% coming from NZ and favourable foreign exchange rates helping to boost GWP.
For the FY19, IAG has guided for an increase in GWP of 2-4% with a reported insurance margin of 16-18%. It stopped short of providing guidance on its net profit most likely due to the various underlying assumptions and other variables which impact its net profit.
While shareholders may be a little disappointed with the result at face value, it is typical for insurance companies to have lumpy results. The results are especially prone to large scale natural disasters which are hard to predict, as we have seen with the December hailstorm in Sydney impacting IAG’s result.
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